TO: City Council
FROM: Beth Beatty, City Manager
DATE: August 6, 2024
SUBJECT: Resolution Authorizing Execution of a Sales-Tax Sharing Agreement with World Automotive
Summary:
World Kia owner, Scott Falcone, requests a partnership agreement to cover 30% of the cost of his upcoming expansion project, World Automotive, through a sales-tax sharing agreement. Mr. Falcone plans to purchase 1705 W. Jefferson Street which is expected to close by the end of July. The expansion’s total cost is estimated at $2,735,000, which means $820,500 is requested. The funding would support the site acquisition and building improvements.
The proposed dealership expansion would:
• Employ 23 new employees (16 full-time and seven part-time) over the first three years of the expansion. Full-time employees can expect an average salary of $6,000/month.
• Generate $1.3 million in sales tax over 10 years, after economic development incentive. This is based on a conservative projection model with a 2% annual growth.
• Continue paying property taxes. The 2022 tax bill for 1705 W. Jefferson was $54,049.10.
• Sell an additional 50 units per month or an additional $1 million in sales - based on World Kia projections.
The acquisition of the land will cost $1,920,000, and $785,000 will be invested in property improvements, which will include the following:
The table in Appendix A illustrates three different growth scenarios based the projected average sales-tax generated by World Kia in the first five years - $127,395. The proposed structure of the tax-sharing agreement is as follows:
• Year 1 to 4: 70% of sales-tax generated from sales/service (to 4th anniversary)
• Year 5 to 8: 60% of sales-tax generated from sales/service (to 8th anniversary)
• Year 9 to 10: 50% of sales-tax generated from sales/service (to 10th anniversary)
The maximum rebate of $820,500 amount is expected to be achieved at around the 10th year of operation, at which point the sales tax sharing program would cease. The anticipated total sales tax generated over the 10-year period would amount to $1,340,246, of which $820,500 would be shared with World Automotive and the remaining $519,746 with the City of Joliet. The Sales Tax Sharing Schedule is attached in Exhibit A.
The estimated closing date is mid-August with operations starting in September 2024.
Public Benefits:
World Kia will be required to hire a minimum of 25% of its expanded workforce from Joliet, equivalent to 5.75 full-time employees. Mr. Falcone was connected with the Joliet Township High School’s Director of Career Technical Education, and the Will County Workforce Investment Board to identify potential candidates.
Payback Requirement:
World Kia will be required to return the total sales tax shared if the dealership is relocated from Joliet within 15 years of the date of executing the agreement.
Background:
World Kia’s sales have been rapidly growing, which has forced Mr. Falcone to look for additional space to accommodate the current and future growth. Originally, Mr. Falcone was interested in moving World Kia to 2000 W. Jefferson; this site would have allowed Mr. Falcone to consolidate his operations and accommodate the growth, however, the sale did not materialize. As an alternative, Mr. Falcone is pursuing the purchase of 1705 W. Jefferson Street, which currently houses RightWay Auto Sales. Due to Kia Franchise rules, the new space would be called World Automotive.
The new site will add 151,153 sq. ft. to the already existing 115,870 sq. ft. operation. The additional space will help expand the auto services and the used auto sales divisions of the business, which will generate sales taxes. World Automotive would start operations and building improvements concurrently.
Mr. Falcone indicated in his application to the City that the expansion can still take place without the sales-tax but would like the assistance as a way to form a partnership with the City because he is committed to remaining and growing his business in Joliet. Conservative projections indicate that both locations together would generate, approximately, $655,216 annually; this equates to $6.5 million over 10 years.
Recommended Action:
The Economic Development and Land Use Committee recommended at their July 24th meeting that City Council approve the sales-tax sharing agreement with World Automotive as presented.
Attachments:
• Resolution
• Exhibit A: Agreement
• Exhibit B: Sales Tax Sharing Schedule
• Exhibit C: Renderings of proposed improvements to 1705 W. Jefferson Street